ABC or Activity-Based Costing

ABC or Activity-Based Costing

ABC or Activity-Based Costing

Total cost for small campaigns: 325000 + 835714 + 337500 = $1498214

Cost for large campaigns: 325000 + 64286 + 112500 = $501786

Creative: $500000 + $150000 = $650000

Small campaigns = (400/ 800 * 650000) = $325000

Large campaigns = (400/ 800 * 650000) = $325000

Production Staff: $750000 + $150000 = $900000

Small campaigns = (325/ 350 * 900000) = $835714

Large campaigns = (25/ 350 * 900000) = $64286

Administration &support staff: $300000 + $150000 = $450000

Small campaigns = (300/ 400 * 450000) = $337500

large campaigns = (100/ 400 * 450000) = $112500

800 (400 small +400 large) advertisements =$500000

Meaning that, for small advertisement= 0.125 X $500000=$62500

For large advertisement = 0.875 X $500000 = $437500

The large advertisement that were successful, =25/400 X $437500 = $27343.75

The small advertisement that were successful, = 325/400 X $62500 = $50781.25

Total creative staff overhead = ($27343.75+ $50781.25) = $78125

Production staff = $750000

Rental and associated costs = $450,000

Administrative & support staff =$300,000

The advertising costs =$2000000

Small campaign: ((1498214 – 1300000) / 1300000) * 100% = 15.25%

Large campaign: ((700000 – 501786) / 700000) * 100% = -28.32%

Reference

Cokins, G. (2001). Activity-based cost management: An executive’s guide. New York: Wiley.

Hicks, D. T. (2002). Activity-based costing: Making it work for small and mid-sized companies.

Horngren, C. (2017). Cost accounting. [S.l.]: Pearson.